Allianz Annual Report 2012

Reserves for insurance and investment contracts Reserves for insurance and investment contracts include aggregate policy reserves, reserves for premium refunds and other insurance reserves. Aggregate policy reserves for participating life insur- ance contracts The aggregate policy reserves for participating life insur- ance contracts are computed in accordance with the re- lated insurance accounting provisions under US GAAP us- ing the net level premium method. The method uses assumptions for mortality, morbidity and interest rates that are guaranteed in the contract or used in determining the policyholder dividends (or premium refunds). DAC and PVFP for traditional participating insurance products are amortized over the expected life of the contracts in propor- tion to EGMs based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated at the end of each reporting period. The pres- ent value of EGMs is computed using the expected invest- ment yield. EGMs include premiums, investment income including realized gains and losses, insurance benefits, administration costs, changes in the aggregate reserves and policyholder dividends. The effect of changes in EGMs are recognized in net income in the period revised. Aggregate policy reserves for traditional long-duration insurance contracts Aggregate policy reserves for traditional long-duration in- surance contracts, such as traditional life and health prod- ucts, are computed in accordance with the related insur- ance accounting provisions under US GAAP using the net level premium method, which represents the present value of estimated future policy benefits to be paid including fu- ture claims handling costs and administration fees less the present value of estimated future net premiums to be col- lected from policyholders. The method uses best estimate assumptions adjusted for a provision for adverse deviation for mortality, morbidity, expected investment yields, sur- renders and expenses at the policy inception date, which remain locked in thereafter unless a premium deficiency occurs. DAC and PVFP for traditional life and health prod- ucts are amortized over the premium paying period of the related policies in proportion to the earned premium using assumptions consistent with those used in computing the aggregate policy reserves. practices and knowledge of the nature and value of a spe- cific type of claim. These case reserves are regularly re- evaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available. IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the ­Allianz Group has not yet been notified. IBNR reserves, similar to case reserves for reported claims, are established to recog- nize the estimated costs, including expenses, necessary to bring claims to final settlement. The ­Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors to estimate IBNR reserves. IBNR re- serves are estimates based on actuarial and statistical pro- jections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts andcircumstancesknownatthetime,predictionsoffuture events, estimates of future inflation and other societal and economic factors. Trends in claim frequency, severity and time lag in reporting are examples of factors used in pro- jecting the IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported. The process of estimating loss and LAE reserves is by nature uncertainduetothelargenumberofvariablesaffectingthe ultimate amount of claims. The ­Allianz Group reduces the uncertainty in reserve estimates through the use of multi- ple actuarial and reserving techniques and certain Group- wide processes and controls. For further information please see note 3 Use of estimates and assumptions. There is no adequate statistical data available for some risk exposures in liability insurance, such as environmental and asbestos claims and large-scale individual claims, be- cause some aspects of these types of claims become known very slowly and continue to evolve. Appropriate provisions have been made for such cases based on the ­Allianz Group’s judgment and analyses of the portfolios in which such risks occur. These provisions represent the ­Allianz Group’s best estimate. Current reserves reflect subsequent loss development and re-estimation of initial reserves. The reserves for loss and loss adjustment expenses for asbestos and environmental claims are regularly reviewed and re- spective trends are monitored. Changes in the asbestos and environmental reserves during 2012 are described in moredetailinNote19Reservesforlossandlossadjustment expenses on page 289. Annual Report 2012 Allianz Group238